Notable News of the Week: August 31, 2012

The Notable News of the Week is a recap of the biggest stories from the mortgage and housing industry. Stories emerging for the week of August 27th to the 31st include housing affordability remaining low regardless of housing price drops; Canadian non-mortgage personal debt has increased to $26,000 on the heels of automotive lending; and Scotiabank announced that it would purchase the Canadian banking arm of the Dutch-based ING Group.

Canadian home prices have fallen in recent months, with an annual price decline of 2 per cent in July, however the price drop was not enough to increase home affordability according to RBC. The percentage of household income taken up by home ownership costs has increased across numerous housing types (for a decrease in affordability) including detached bungalows and two-storey homes (now at 43.4 per cent), while condos remained unchanged (at 28.8 per cent). The recent mortgage rules has helped cool housing prices with further declines possible in the near future, says RBC’s senior economist. Currently, single-family home affordability is above the long-term average in Canada. The chief economist at CREA says there is a lesser sense of urgency for the Bank of Canada to hike interest rates.

“The Bank of Canada of course cannot keep interest rates at their extremely stimulative level that they are right now, but I think that the first quarter [of 2013] is likely to be on the early side of calls as to when the bank is going to act,” – Gregory Klump, chief economist for CREA

The size of the average condo has been shrinking in recent years, from 920 square feet three years ago down to 795 square feet today. And furniture retailers have caught on by offering smaller-sized furniture to service the new smaller units. The need for compact, space efficient, multi-use furniture will continue to be in demand as long as people continue to flock to cities, while condo layouts become more space-challenged. Interestingly, suburban residents are also drawn to the aesthetics and functionality of smaller modern furniture.

Record-low mortgage rates in Canada has been fuelling a buying frenzy over the past few years which has kept our economy relatively stable compared to the rest of the world. However, consumers are piling on more debt than ever before, and not just mortgage debt! According to TransUnion, the average consumer debt has risen 2.41 per cent from the second quarter last year to this year, and now sits at $26,221 excluding mortgage debt. Most of debt increase was driven by car loans which increased 13 per cent year-over-year.

Scotiabank announced on Wednesday that it has reached an agreement to buy the Canadian division of ING Direct for $3.13 billion from the Dutch-based ING Group, who has been struggling with its balance sheets since the financial crisis. ING Group is selling its assets in Canada and the U.S to raise funds needed to repay its bail-out loans. According to Scotiabank, “ING Direct will benefit from the backing of a strong, stable Canadian shareholder with the additional resources to enable it to expand and grow.” ING’s business model was tailored to Canadians who were looking for no-fee banking without the added services, advice, or relationships of a traditional bank. “We recognize that success and are committed to keeping this unique platform,” says Scotiabank.

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